High Court: MTNL can't levy service tax on bill after discount
January, 05th 2011
The Bombay high court has significantly ruled that Mahanagar Telephone Nigam Limited (MTNL) cannot charge service tax after deducting discount from the bi-monthly rental bill under its Own Your Telephone (OYT) scheme.
According to petitioner Sanjay Kothari, under the scheme he paid an advance lump sum of Rs5,000 and was entitled to a reduction of Rs40 on the bi-monthly bill for 20 years. He said that the bi-monthly rental is Rs340, and under the Finance Act, 1994 five per cent service tax is chargeable on the gross bill. His advocate argued that while Kothari is liable to pay service tax of Rs17 on a rental of Rs340, MTNL is charging service tax of Rs19, taking the rental as Rs380. He urged for a refund of the excess service tax taken from him.
MTNL submitted that Kotharis bi-monthly rental is Rs380 and Rs40 is given as a rebate because he made an initial deposit of Rs5,000. And as he enjoys this concession of Rs40, MTNL is entitled to claim service tax on Rs380.
The division bench of justice DK Deshmukh and justice ND Deshpande in their December 21, 2010 order said the whole debate is whether the amount of Rs5,000, which was paid by the petitioner at the time of taking the connection, is a deposit or payment. The judges said if it is to be treated as a deposit then the concession of Rs40 will have to be taken into consideration while calculating the total rental payable by Kothari.
On the other hand, if it is to be treated as payment, Rs340 will be taken as the total rental payable by Kothari.
The judges noted that perusal of the scheme shows that the subscriber does not make any deposit. He pays an initial lump sum towards the rentals and hence he is allowed reduction in the annual rentals for a specified period. It is thus clear that the initial payment made by the subscriber is not a deposit. It is a payment of rentals which entitles him to specified reduction in the annual rentals for a specified period, the judges wrote. They concluded that Kothari is right in contending that for the purpose of charging service tax, Rs340 is the amount of bi-monthly rentals and not Rs380.